Prioritized KPI’s open the heart of supply chain engineers

What you measure is what you get – or at least that’s how it should be. When implementing a forecasting and replenishment optimisation solution it’s often easy to specify and implement a wide range of target metrics such as shelf availability, shrinkage, and store handling costs.

However, once you have reached a plateau in terms of control, as you continue to push for better results measured in terms of one set of metrics others can start to suffer. Increasing availability increases spoilage unless planning accuracy improves at the same time, while cutting inventory through more frequent deliveries pushes up logistics and store shelving costs. Development gets more difficult at this plateau stage, as in terms of metrics, different senior managers have different priorities – for example supply chain directors and managers and chief finance officers often press for lower spoilage while sales directors and their teams stress the importance of maximising shelf availability.

Figure 1. When you push for better results measured in terms of one set of metrics others can start to suffer.

When implementing supply chain solutions we are aiming for multiple goal optimisation. The best results with the minimum of friction within the client organisation has been achieved in projects where senior managers have come to an agreement on the priority of the different KPIs. I have found that best way of target setting is to set to each product group or segment minimum targets for each metric and, after that, to clearly state the priorities of the conflicting target metrics. This actually becomes dramatically more important when working with advanced forecasting and replenishment solutions, because you can instantly affect the results of your entire retail chain by changing targets and control parameters – your set targets influence the actual results, and very quickly.